Nokia, RIM: Sidekicks walking through the valley of the shadow of death

Nokia and Research in Motion should collaborate on their respective corporate slogans. In fact, the companies could just share a slogan: "Just wait 'til 2012!"

The big question is how many body blows Nokia and RIM will take in the smartphone industry in 2011 as they wander into 2012 when their latest greatest devices land

Let's start with Nokia since it is in the most danger. On Wednesday, the company signed its definitive agreement with Microsoft to use Windows Phone 7 as its operating system of choice. In a blog post, Nokia portrayed the speed of the Microsoft definitive agreement as "an example of the speed at which we plan to move together."

But there's a catch.

Hundreds of our team members are already working together toward a multi-year product roadmap and are on-schedule to deliver volume shipments in 2012 although the pressure is on for first delivery in 2011.

Nokia's first quarter earnings report, highlighted a sales gain of 9 percent and a profit decline of 7 percent. Overall, Nokia's quarter wasn't half bad. But future quarters get worse. Nokia CEO Stephen Elop said:

Following a solid first quarter, we expect a more challenging second quarter. However, we are encouraged by our roadmap of mobile phones and Symbian smartphones, which we will ship through the balance of the year.

Nokia's outlook also calls for more pricing pressure and a lower contribution from new products and market share declines. Barclays Capital analyst Andrew Gardiner noted that Nokia finds "a deeper 2011 trough ahead of a 2012 recovery." Gardiner wrote:

Nokia is guiding us towards a steeper decline in market share and margins than anticipated by consensus, although we believe investor expectations were already low. The events in Japan are also affecting Nokia's unit volumes in 2Q and 3Q.

Morgan Stanley analyst Patrick Standaert was a bit more direct:

We remain concerned by the speed at which the company is losing market share (29% in 1Q11, down from 31% in 4Q10 and 33% in 1Q10) and its weak portfolio/eco-system momentum (WP phone only due in 2012).

And that's the rub. It will be open season on Nokia in 2011. Will anyone really want to be the last person to buy a Symbian device in the second half of the year? It's doubtful. Nokia will be lucky to move any smartphones in 2011 as most folks wait to see what the handset maker will do with Windows Phone 7. Even then, Nokia's standing in the smartphone market is far from assured.

Research in Motion is largely in the same position. Let's take a break from beating up the PlayBook in reviews to note the one positive most people agree on: The QNX operating system works well. In fact, the PlayBook may stoke some interest about QNX and its abilities on a smartphone, or what RIM has called a superphone.

The problem with a little QNX interest is this: RIM won't have QNX devices until 2012. In the meantime, RIM will try and sell you BlackBerry OS 6.1 devices.

Listening to RIM co-CEO Jim Balsillie on RIM's recent earnings conference call led to a sense of deja vu. This time last year RIM was going into its big annual conference talking up the Torch and BlackBerry OS 6.0 and how those products will save the day. In 2011, RIM is betting on the PlayBook and BlackBerry OS 6.1 devices to save the day. On deck: QNX superphones in 2012.

Can someone explain to me why I want to buy a OS 6.1 device this year?

Analysts were wondering the same thing on RIM's fourth quarter conference call. Gus Papageorgiou, an analyst at Scotia Capital, asked:

You're going to be releasing the BlackBerry 6.1 devices and then you're saying QNX coming 2012.I'm just wondering if carriers are expecting QNX devices to be coming not too far behind the 6.1 devices is that going to cause some hesitation to adopt the 6.1 devices? Like, why not just wait for the QNX devices and hold off for 6.1?

Balsillie's answer:

There's a time lag between the 6.1 and the QNX stuff and the certification cycle So that's point number one. And second of all, 6.1, if you saw the products, the demand in interest for those products is amazing. And so there's just enormous interest in the new products. And clearly looking at the superphone market, which is really going to be a redefined, in so many ways of capability, that's going to open up that whole aspect of future performance. But never in any of these has there been diminished interest in the new 6.1 devices. The interest is super intense.

Balsillie was later asked about whether 6.1 would enjoy sustained uptake. An analyst then asked him to explain why 6.1 was a major upgrade and RIM's co-CEO said:

We've not announced all the details. I think you see that at BlackBerry World so I'm just not going to go into a lot of details. We haven't announced it formally yet. No, no, the power of the 6.1, and it's highly sustainable, the interest in it. No, there's no -- the meetings with the carriers on these products and the level of commitment is outstanding.

If RIM doesn't deliver another round of must-have Blackberries then it will be holding the fort until 2012. Just like Nokia.

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